Buy-to-lets for R50 000 and less

Denise MhlangaWho needs a home loan? For the price of a modest second-hand car, one of these properties could be yours. Realestateweb investigates.

Who needs a home loan, when cash property deals of bargains priced from R40 000 in some parts of Berea in Johannesburg are selling like hot cakes? Investors are reportedly snapping up these bargains and renting them out, thanks to demand for accommodation in the inner city as foreigners continue to flock to the inner city and surrounding areas.

Be warned though: these properties generally need a lot of renovation. On the other hand, some priced up to R90 000 have already been refurbished, says David Jacobs, estate agent at David Jacobs Real Estate.

Jacobs says investors and other property buyers are still getting home loan financing even though banks have tightened up on lending.

For example, he says the cheapest one-bedroom flat he recently sold in Berea was priced at R25 000 and there have been a few bargains for R40 000. Others can cost up to R90 000, which is still considered bargain in the current property market.

Estate agents operating in Berea told that banks are wary of Berea as some buildings owe the council a lot of money and their financial statements are not appetizing for banks.

As a result, a number of property deals are cash deals only and bargains start in the region of R50 000 to R100 000. Where buildings are in a good state, managed well and their financial statements are all in order, banks do lend to investors and buyers in Berea, say agents.

Abubakar Imam, estate agent at Down Town Properties, says these cash property deals don't stay for long on the market as investors buy to renovate them for rental purposes. For R90 000, one can buy a two-bedroom flat in good condition, while a one-bedroom flat can be found for about R50 000 in Berea.

Imam says crime levels have come down compared to about two or three years ago, and investors are gaining confidence in the Berea property market again.

Another estate agent, Ike Ubah from Golden Stone Properties, says cash is king in Berea when it comes to property deals. Banks are not keen on lending to buyers purchasing properties in the so-called "red alert" buildings. So investors and people who have lived in the area for a while buy properties for cash, tempted by the offerings available for about R50 000.

Another estate agent who says that people living in Berea are also beginning to show interest in these cash property bargains is Sibongile Majabe, of Majabe Properties. Previously, local buyers were wary of these R50 000 property deals but, as they see more investors buying and renting them out, they too have jumped onto the bandwagon to buy their own properties, says Majabe.

What banks say about Berea

FNB uses a rating system when assessing home loan applications. Berea is rated "high risk" and is one of over 8 000 areas which fall into this category across the country.

FNB Home Loans' chief executive officer Jan Kleynhans told Realestateweb there are many factors that go into the rating system and, because area rating is sensitive for competitive reasons, the bank could not disclose details of how the area rating system works.

However, when a home loan application is assessed, the bank looks at factors such as amenities close to the property, property price movements in the area, demand levels and the degree of liquidity (or ease at which properties sell) in the market, he explains.

In the past 12 months, FirstRand has provided mortgage finance on 25 deals worth over R6m in Berea and Hillbrow and seven deals in Yeoville valued at R2m, he adds.

Absa's head office in the inner city is an indication of confidence in the property market and in granting home loans - and the bank is guided by the municipality strategies for rejuvenating the city, says Luthando Vutula, managing executive of Absa Home Loans.

Absa says it does not apply a rating system to Berea.

Standard Bank said it lends to buyers in sectional title developments in the inner city provided that the body corporate's financial position is sound and sustainable. Also, the application submitted must be within a set concentration risk exposure the bank is prepared to entertain in the sectional title complex and this is done in all sectional title areas regardless of location.

The bank has not granted any home loans in Berea and Hillbrow this year, it said, explaining that this is because of the overall slump in the property market and general risk across the market and not because of the area.

In 2008, Standard Bank accepted 54% home loan applications in these two areas, which is a total of 168 home loans granted from the total of 313 applications received.

The bank says it is important to note that Berea and Hillbrow are traditionally rental areas and, therefore, there are not many home loan applications coming through.

Nedbank told that it does not use any rating system but considers buyer affordability when deciding on whether to grant a home loan.

Article from: